Wrong Economy Train or Is It Team 2

In my last article with the same header, I humorously compared the size of the Federal Internal Revenue Service (FIRS) and that of the Central Bank (CBN) – the size of their buildings in Abuja that is. For those that did not understand the point I was driving at, I tried to let Nigerians know the effects of two major routes available for the naira to go back to the national treasury from our pockets. I am of the opinion that for as long as the route the naira travels back from the citizens to fund government treasury is not reformed, the economy will continue flutter. Government is a major player in any economy and its funding is probably the most tasking. Conventionally, taxes and duties form major funding of government treasury; hence the citizens are referred to as “taxpayers,” and government in return expend what it has on salaries and contracts. Apart from tax and duties paid by the citizens, the other route available for the local currency is for government to exchange what it has in its possession with the citizens for money. In our own case it is oil or/and land.

Consequently, the Nigerian government earns dollar from the sale of our oil and exchanges the foreign currency earned for naira in our pockets to run its activities. That forms the basis of the exchange rate as it were. That should be expected since government working capital is the naira and government needs the local currency, because salaries are paid and contracts are awarded in naira. The argument has been to allow the market forces to determine that exchange rate and at the same time be able to spur our development to a higher pedestal. However, after 22½ years of that experiment, the Nigerian economy has been the worst for it and the development of the country has been stymied. The exchange rate has become the most distorted in Nigeria ’s economy. The reason, however, is not farfetched. As it were, the Central Bank takes the petrodollar to a market, called the Dutch auction, but allows businesses and individuals to bid for the available foreign currency on the basis of affordability by the bidders and not based on job or wealth creation.

One does not need rocket science to deduce that those with dynamic businesses (banks, traders and those that are in possession of cheap money through government patronage) will always outbid the job and wealth creators at that exchange market. If one does not know why majority of our manufacturers have quit or scaled down their production this could be why. Only a few days ago, it was reported that two giant manufacturing giants, UAC and PZ, have given notice to quit Nigeria because of the exchange rate. These are major employers of labour and wealth creators. Similar manufacturing companies have collapsed in their operations – Michelin and Dunlop have stopped production and we keep on deluding ourselves that it is mainly because of infrastructural decay, such as lack of electricity power. That also, but it may not be the reason why so many have gone out of business throwing many Nigerians into the unemployment market.

Government is the largest business in Nigeria and that is a fact. Its working capital is the local currency as explained above and it is why government's funding exerts so much pressure on the naira. The day after Y’ardua announced a deficit of N1 trillion plus in this year budget, the value naira plummeted – if you remember. Government, through CBN, quickly blamed it on speculators, but we all now know better that it was orchestrated by CBN. Speculators and the CBN know that Nigeria ’s tax system is defective and the only other route the naira can take to fund that deficit is through the exchange market and not by traditional tax. If you think that it does not matter as long as government is funded or the deficit (gap in budgeted revenue) is closed, you are correct. But with that, only those with business dynamism will be able to afford the high exchange rate. Higher employers of labour or wealth creators will be further weakened. That had been the trend, but because the price of oil continued to rise in the past, it was not that apparent except to some discerning minds.

Today, the price of oil is weak. The hen has come home to roost. Some few hours ago, on UK ’s Sky News, it was reported that the CBN has suspended the inter-bank currency trading in order to stabilise the naira. Good news you may say, but for how long are we going to be subjected to this fire brigade approach to Nigeria ’s economy. I will rather think nobody is playing mischief, but more likely a result of gross oversights. The 13-man economic team is in place: I hope they read this and other similar alternative reasoning. This is from an “armchair economist.” It is time we developed another major route for the naira to fund the national treasury. I will still recommend a reformed tax system. This appears not popular and that is because many citizens do not want to pay their tax and for good reasons too. However, Fashola of Lagos State has managed to raise the state’s internally generated revenue from N1 billion a month to N15 billion through tax and many people are willing to pay because of what they can see. Until we are able to shift from funding federal government treasury through the exchange market to that of reformed tax system, my gut tells me we will continue to run around like confused being.

Samuel Akinyele Caulcrick

Chief Flying Instructor'

Nigeria College of Aviation Technology 

Robot  # 1 | 13.02.2009 08:11

Wrong Economy Train or Is It Team 2 In my last article with the same header, I humorously compared the size of the Federal Internal Revenue Service (FIRS) and that of the Central Bank (CBN) – the size of their buildings in Abuja that is. For those that did not understand the point I was driving at, I tried to let Nigerians know the effects of two major routes available for the naira to go back to the national treasury from our pockets. I am of the opinion that for as long as the route the naira travels back from the citizens to fund government treasury is not reformed, the economy will continue flutter. Government is a major player in any economy and its funding is probably the most tasking. Conventionally, taxes and duties form major funding of government treasury; hence the citizens are referred to as “taxpayers,” and government in return expend what it has on salaries and contracts. Apart from tax and duties paid ...Read the full article.